10/05/2009 @ 12:00AM

Seeking Financial Nirvana

Why is life so complicated? The list of culprits includes tax code writers, whoever it is who comes up with the rebate procedures for electronic gadgets, and life insurance salesmen.

Long ago life insurance was simple. You bought protection so that if you died young your kids wouldn’t have to beg for food. Now you have all kinds of enhanced features to contend with: Guaranteed Minimum Income Benefit, Return of Premium, Equity Linked Universal Life, Lifetime Withdrawal Guarantee. What should be plain old death protection has become wrapped up in an actuarial hair ball that, for no socially desirable reason, mixes insurance with investment. Now you need consultants and computer programmers to make a decision.

William P. Barrett explains, in “Life Settlement Roulette”, the tricky business of exiting from a cash-value policy. This matter will confront you sooner or later if you bought that kind of life insurance a while ago and then made the mistake of living too long. Now your kids are past the begging age, and you need money for your own groceries. So you have to consider the different methods of cashing in the policy. The easy way out is to just take the sum that the insurance company is offering. But if you do that you might be leaving tens of thousands of dollars on the table. So out come the consultants, tax planners and middlemen.

If you have already bought a cash-value policy it’s too late to live a financially uncluttered life. But for younger folk, insurance expert Glenn S. Daily has some advice: Choose simplicity. Buy level-payment term insurance. This product has a flat annual rate, no cash value at the end and no decisions for you to make except to send in the premiums.

Level-payment term is cheap. A 35-year-old woman in perfect health could get $1 million of coverage for 20 years at a fixed $450 a year. That will cover the kids until they’re out of college, and it won’t leave the buyer so impoverished that she can’t put money aside elsewhere to cover her retirement. The reason sales agents don’t push term insurance is that it’s so simple and so easy on comparison shoppers, and as a result so cheap that they can’t make a living off the commissions.

Voluntary simplicity–I was thinking about that after buying an
Apple
iTouch I didn’t really need and then wrestling with the rebate form. Maybe I’d be happier living on a mountaintop in Tibet, without any modern conveniences. The satiric poet Ogden Nash captured the dilemma back in the days when the marketing gimmicks were pieces of cardboard snipped out of cereal cartons: